Would you like to benefit from a competitive interest rate on a personal loan? You will need good credit.
The advantage of getting a personal loan is that you can use this money for any purpose. If you have credit card debt that you want to pay off cheaply, you can take out a personal loan at a lower interest rate and eliminate your balances. Or you can take out a personal loan for:
But if you’re going to take out a personal loan, it’s important that you have a good credit rating when you apply. Here’s why.
Your score could be your most valuable asset
When you take out a mortgage, that home loan is secured by the asset it is used to finance – your home. If you don’t pay off your mortgage, your lender may force the sale of your home in order to get paid off. The same goes for a car loan. Fall behind on your payments and your lender can trade in and sell your car to fulfill your loan obligation.
Personal loans, however, work differently. Personal loans are unsecured loans, meaning they are not tied to any specific asset. If you don’t repay your personal loan, there are no assets your lender can force you to sell to get their money back.
For this reason, personal lenders can be quite picky about which applicants they approve. And they tend to favor applicants who come in with good credit scores.
The higher your score, the more likely you will not only be approved, but also get a competitive interest rate on a personal loan. To be clear, he is possible to qualify for a personal loan if your credit score isn’t as strong, but you could end up with a high interest rate that makes the loan much less affordable.
How to increase your credit score
If you’re looking to apply for a personal loan but aren’t thrilled with how your credit score looks, it’s worth working on improving it before submitting that application. You can do this in several ways:
- Pay your bills on time, which will result in a more favorable payment history. Your payment history carries more weight than any other factor when calculating your credit score.
- Pay off existing credit card debt. This will lower your credit utilization ratio, which is another important factor that goes into determining your score. That said, if you’re in a situation where you need to take out a personal loan, you may not have the means to pay off the debt you already have.
- Check credit report errors. If there are mistakes working against you, getting them corrected could improve your score quickly.
If you’re applying for a personal loan, a good credit score could make it easier to get approved and get an affordable interest rate. Check your credit score before applying for a personal loan so you won’t be disappointed.
The Ascent’s Best Personal Loans for 2021
The Ascent team has scoured the market to bring you a shortlist of the best personal loan providers. Whether you’re looking to pay off debt faster by lowering your interest rate or need extra money to make a big purchase, these top picks can help you reach your financial goals. Click here for the full rundown of The Ascent’s top picks.